A district court had ruled in 2010 that while YouTube was hosting said videos, it was not breaking the law as long as it was unaware of the videos. It cited the Digital Millennium Copyright Act’s “safe harbor” provision, which exonerates a file-hosting site if it is unaware of the illegal content.

The idea behind the provision is that sites like YouTube are responsible if they condone the uploading but that they can’t be responsible for every user's activity.

The appeals court rejected that ruling on Thursday on grounds that YouTube might be aware of said violating videos.

“A reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its website. We further hold that the District Court erred by interpreting the “right and ability to control” infringing activity to require “item-specific” knowledge,” the judges wrote.

The appeals court concurred that the “safe harbor” provision of the DMCA requires awareness of specific infringing activity, but not “item-specific” knowledge. In other words, YouTube might not know that an individual video violated copyright, but if it is aware of the existence of infringing videos writ large, it is still culpable.

For now, the legal burden has been on the likes of Viacom to identify infringing videos. A ruling that gives YouTube more responsibility for its users' activity would have a big impact on it and other file-hosting sites.

Viacom hailed the decision, calling it "a definitive, common sense message" that intentionally ignoring theft is not protected by the law. Google, not surprisingly, downplayed its significance.

“All that is left of the Viacom lawsuit that began as a wholesale attack on YouTube is a dispute over a tiny percentage of videos long ago removed from YouTube,” Google said in a statement.

Meanwhile, Public Knowledge, a group dedicated to an open internet, took comfort in the fact that the court "upheld the need for knowledge of specific instances of copyright infringement in order to act on it.

"We are pleased with the Appeals Court ruling," the group said. "The court upheld the basic principles of the Digital Millennium Copyright Act."

Despite this ongoing legal spat, keep in mind that Viacom-owned Paramount and YouTube just agreed to make 500 of the studio's movies available to rent on YouTube.